Commercial and multifamily mortgages continue to have the lowest
rates of charge-offs of any loan types at banks and thrifts and perform better
than the overall loan portfolios at those institutions according to the
Mortgage Bankers Association (MBA).
In response to what it referred to as a great deal of
discussion and conjecture about those loans in recent months, MBA updated an earlier
"DataNote" analysis of commercial and multifamily mortgage data from
the 4th quarter of 2008 with data from the same period in 2009.
The report states that 56 percent of the assets held by banks
and thrifts at the end of 2009 consisted of loans and leases, a category that
includes 1-4 family mortgages, home equity loans, credit cards and other
consumer loans, commercial mortgages, multifamily mortgages, construction
loans, and commercial and industrial loans.
One to four family residential loans constitute the largest part of this
category of bank holdings at $1.9 trillion or 26 percent of the total; commercial
and commercial mortgages represent another $1.1 trillion or 15 percent, and
commercial and industrial loans $1.2 trillion or 17 percent. Multifamily mortgages are a much smaller
component at $211 billion or 3 percent of the portfolios but these are the only
category of loan to have grown over the last year.
From the release:
The overall 30+ day delinquency rate among all loans in the
4th quarter of 2009 was 7.30 percent. Commercial mortgages had a 5.06 percent delinquency
rate during the quarter and multifamily mortgages loans 5.64 percent. The best rates were recorded by
commercial/industrial loans at 4.39 percent and, surprisingly, home equity
loans at 3.15 percent. It should be
noted that about 45 percent of the commercial mortgage category is comprised of
business loans backed by owner-occupied property and supported by the income of
those businesses rather than by income producing rental property.
Construction loans had the highest 30+ day delinquency rates
among the various loan types, spiking from around 5 percent in the 4th
quarter of 2007 to 18.6 percent by the 4th quarter of 2009. The report said that this increase was driven
mainly by poor performance among single-family related land and construction
loans. Single-family mortgages were
second with a 12.49 percent rate, and credit cards were third at 6.28 percent.
Delinquency rates increased across most categories with
overall delinquencies among all loans and leases up by 0.44 percent from the
third quarter of 2009 to the fourth. Commercial mortgages increased 0.5 percent
and multifamily mortgages were up 0.9 percent.
Single-family mortgages
increased by 1.3 percent and construction loan delinquencies were 0.7 percent
higher.
As is historically the case because of the value of the underlying
security, commercial and multifamily mortgages had the lowest charge-off rates
of any type of loan at commercial banks and thrifts during 2009. 0.8 percent of commercial mortgages and 1.1
percent of multifamily mortgages were charged-off during 2009 compared to 1.7
percent of 1.4 family residential loans, 2.4 percent of commercial and
industrial loans, 2.9 percent of home equity loans and 9.1 percent of credit
card loans.
In dollars, the charge-offs of commercial and multifamily
mortgages are also low in relative terms.
Over the last two years banks and thrifts have charged off $105.5
billion in loans to individuals, $83 billion in residential loans, $51 billion
in commercial and industrial loans, and $47 billion in construction loans but
only $11 billion in commercial mortgages and $3 billion in multifamily
loans. MBA makes the assumption that had
banks lent the money they have given to commercial and multifamily mortgages to
other types of loans instead, they would have suffered roughly $36 billion in
charge-offs during 2008 and 2009 that they have not seen.
The MBA report points out commercial and multifamily
mortgages have, like other parts of the economy, been negatively impacted by
job losses, consumer restraint and manufacturing declines. The relatively stable performance and low
charge-offs of commercial mortgage through the recent recession, however, have
helped rather than hurt the stability of banks and thrifts.